by S BIRRUNTHA / pic by MUHD AMIN NAHARUL
RHB Investment Bank Bhd has maintained a neutral call on the real estate sector, as it selected Sime Darby Property Bhd and Mah Sing Group Bhd as one of the top picks with ‘Buy’ call.
The investment bank also added that it is maintaining a less bearish view on the overall property market outlook for 2021.
“Given the positive developments on vaccines and the market’s expectation of their availability in the second half of this year (2H21), we believe economic growth will gradually pick up.
“While we expect low interest rates and economic stimulus plans to help spur demand for property to a certain extent, the sporadic resurgence of Covid-19 infections and partial lockdowns may still happen — which will likely dampen buyer sentiment,” it said in a recent research note.
After an estimated 20% to 25% dip in sales last year, the investment bank expects property sales to grow by about 10% year-on-year (YoY) in 2021, assuming there will be no repeat of a nationwide lockdown.
If there is a Movement Control Order (MCO) 2.0 for a duration of two to three months again, it expects property sales to fall by another 10% YoY this year. “We are glad that most developers have already written down their unsold inventories and in-progress projects, including some investment properties and overseas investment, to a large extent, over the past few years.
“The top five developers including Sime Darby Property, IOI Properties Group Bhd and Mah Sing have collectively incurred RM1.5 billion in impairments over the last three years.
“We do not anticipate any further material write-offs for the sector in 2021. After these kitchen-sinking exercises, the sector’s earnings will likely better reflect the real sales and earnings growth momentum going forward,” it noted.
RHB maintained a long-term positive view on the sector due to the positive spill-over effects from new infrastructure projects such as the Johor Baru-Singapore Rapid Transit System (RTS) and Mass Rapid Transit Line 3 (MRT3) in the Klang Valley.
It said the tabling of the 12th Malaysia Plan in March should also provide a better clarity on the country’s development plans over the mid- to long-term, and whether the government will likely pursue the high-speed rail connecting Kuala Lumpur and southern Malaysia.
The enhanced connectivity brought by rail infrastructure is normally good for real estate developments due to higher traffic flow and business activities.
RHB noted that the oversupply glut may limit near-term demand recovery in the property market.
“Despite cheap valuations, sector fundamentals are still not strong enough to warrant an upgrade in rating for now.
“We think the economy will still take some time to recover, as the availability of vaccines in Malaysia would not be immediate. The oversupply glut may limit the recovery in demand over the near term,” it said.
The investment bank has listed Sime Darby Property and Mah Sing as its preferred ‘Buy’ with a target price of 88 sen and RM1.09 respectively.
“Sime Darby Property will likely see a strong rebound in property sales given its competitive marketing campaigns.
“As for Mah Sing, we like its management’s efforts made to diversify the business. The new glove manufacturing arm is expected to lift earnings by about 60% YoY in 2021 from 2H21 onwards,” it noted.